(Reuters) - U.S. bank industry earnings fell by almost $7 billion in the third quarter but were far better than a year ago as the industry continues to recover from the financial crisis.

The Federal Deposit Insurance Corp announced on Tuesday that net income for the banking industry was $14.5 billion for the third quarter, which compares to $21.4 billion in the second quarter and $2 billion in the third quarter of 2009.

The agency said that third-quarter earnings would have reached a three-year high had it not been for a $10.4 billion goodwill charge taken by Bank of America during the quarter for its card business.

"The industry continues making progress in recovering from the financial crisis," FDIC Chairman Sheila Bair said in a statement. "Credit performance has been improving, and we remain cautiously optimistic about the outlook."

The banking industry has been setting aside less money to guard against losses, helping to boost earnings.

The amount of bad loans, those 90 days or more past due, declined for the second consecutive quarter, the agency said in its latest quarterly report. The balances for these loans declined by 2.1 percent, or $8.3 billion, in the third quarter.

The number of banks on the agency's "problem list," however, grew from 829 to 860, which is the highest number since March of 1993 when there were 928 institutions on the list.

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